SW Legal studies in Business

Federal Arbitration Act Applies to All Employment Contracts Except for Transportation Workers
Description The Supreme Court reversed a court of appeals decision that held that the Federal Arbitration Act did not apply to employment contracts. The Court held that the Act applies to all employment contracts except those involving transportation workers, which Congress excluded, and that the statute overrides state law to the contrary.
Topic Alternate Dispute Resolution
Key Words Arbitration; Employment Contracts; Commerce
C A S E   S U M M A R Y
Facts When Adams went to work for Circuit City Stores, he signed a statement that he would "settle any and all ... disputes or controversies arising out of or relating to ... employment ... exclusively by final and binding arbitration before a neutral Arbitrator." Two years later, Adams sued Circuit City for employment discrimination and other claims based on California law. Circuit City moved to compel arbitration, which was ordered by the federal district court. The court of appeals reversed, holding that the Federal Arbitration Act (FAA) does not apply to contracts of employment since the FAA excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Circuit City appealed.
Decision Reversed. The provision of the FAA does not exclude all employment contracts, only contracts of employment of transportation workers. That was the intent of Congress when it wrote the statute. The FAA, as federal law, preempts state employment law in California that restricts the ability of all workers to enter into arbitration agreements. Hence, the arbitration clause in the agreement between Adams and Circuit City is to be enforced. "Arbitration agreements allow parties to avoid the costs of litigation, a benefit that may be of particular importance in employment litigation...."
Citation Circuit City Stores, Inc. v. Adams, - S.Ct. - (2001 WL 273205, Sup. Ct., 2001)

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